WHAT WE WANT

1. Unsolicited offers of credit card increases must be regulated. An offer should only be made by a financial institution if they have assessed capacity to repay of the card holder.

2. Payment system biases towards credit cards should be removed. Consumers should be able to use debit cards to make purchases over the phone or internet.

3. Credit card bills should include a statement as to how long the outstanding balance will take to repay, if only the minimum payment is made.

4. Credit card advertising should be subject to real regulation - not the self-regulatory regime that allows just about anything.

 

In November 2002, Visa International released "The Credit Card Report: Credit card spending in perspective". We believe that this report distorts the real picture.  Read the response to the Visa report by CFA and the Australian Consumers Association.

BACKGROUND

CFA is gravely concerned about the irresponsible marketing of credit cards by our financial institutions, particularly the use of "preapproved" credit limit increases.  

Five years ago, in mid-1999, Australians owed around $11 billion on their collective credit cards. Today that figure has ballooned to $27 billion. This may not be a problem if it simply reflected a change in payment mechanisms – a move toward a cashless society, where we religiously repaid our outstanding balance at the end of each month. But there lies the rub. Around 19 billion of that debt is interest-bearing. Each month, as a society, we are falling further into hock.

 

Our payment system is outrageously biased towards credit cards. The banks reap what is cutely known as an “interchange fee” every time a credit card purchase is made. These fees are simply hidden taxes. Have you ever wondered why you can't use your debit card to make a purchase over the phone or on the internet? Ask no more. Credit card purchases earn higher interchange fees for the credit card providers than debit cards.

 

Credit providers send out thousands of letters each day offering credit increases to those who cannot afford them. At the extreme, there are cases of pensioners who start with say a $3,000 credit limit, and end up owing $25,000. Each credit increase is used to repay the last. Some enter bankruptcy. A more common scenario is an insidious credit spiral, with consumers managing to struggle by, but under increasing financial stress. The impacts on children, families and our society are obvious.

 

Many people wrongly assume that the credit provider offering them an increased limit considers them to be a good risk. Little do they know that the letters are as common as the tokens in cereal packets.

 

Financial institutions must be required to assess capacity to repay. Unsolicited credit offers should not be made. The Australian Capital Territory has such legislation. The other States and Territories should follow suit.

 

We should take a leaf from the anti-smoking lobby and add a health warning at the end of every card statement: “credit card debt is dangerous to your wealth.” Card providers should disclose how long a debt would take to repay if only the minimum payments were made each month. For example, a $2,000 debt, with minimum repayments, will take seven years to clear.